Rep. Sean Scanlon wants CT to keep trying to send rebate dollars to families
State Comptroller Sean Scanlon File Photo

State Comptroller Sean Scanlon urged his former colleagues in the General Assembly Thursday to follow the state’s budgetary guardrails as closely as possible, even after wrapping its sixth successive fiscal year deep in the black.

Scanlon said Gov. Ned Lamont and the Democratic-controlled General Assembly have carefully addressed pressing state needs while simultaneously amassing a record-setting reserve and taking a huge chunk out of Connecticut’s massive pension debt.

But he also cautioned lawmakers against the temptation to work around the spending cap and other savings programs in the coming years, when surpluses aren’t projected to be as robust.

“I think the governor and the legislature have done a very good job in the last couple of years to find that right balance,” Scanlon, a Guilford Democrat elected two years ago to his first term as comptroller, said during a virtual press conference Thursday as he reviewed finances from the 2022-23 fiscal year, which closed June 30. 

Unofficial numbers, which are still being audited, have the last budget finishing with nearly $1.9 billion left over. Nearly all of that windfall, equal to more than 8% of the budget’s General Fund, will be used to pay down pension debt.

But officials can’t lose sight of the bigger picture, Scanlon said. More specifically, that involves the roughly $40 billion in unfunded pension obligations that Connecticut had entering the past year, a legacy of debt created between 1939 and 2010 “because generations of Democrats and Republicans kicked the can down the road” and failed to save properly, he said.

Those pension burdens, coupled with unfunded retiree health care obligations and bonded debt, totaled more than $88 billion entering 2023, making Connecticut one of the most indebted states, per capita, in the nation.

The numbers would be far worse, though, had the 2017 legislature not adopted a bipartisan package of reforms that forces the state to save a huge portion of its quarterly income and business tax receipts — one of the most volatile portions of the state’s overall revenue system.

This “volatility adjustment,” coupled with a more stringent spending cap and a robust stock market between 2018 and early 2022, has pushed the rainy day fund from $213 million in 2018 — about 1% of the General Fund — to a legal maximum 15% reserve that holds more than $3.3 billion.

And by later this fall, Connecticut will have deposited nearly $7.7 billion in surpluses into its pension funds since 2020.

Both Scanlon and Lamont’s budget office project that had the state not made those supplemental deposits, required annual contributions to public-sector pensions would be more than $600 million per year higher in the next biennial budget cycle.

“What we’re doing is working, it is clearly working” said Scanlon, who was part of the 2017 legislature that enacted those budget reforms and is a former co-chairman of the Finance, Revenue and Bonding Committee. “There is nobody in the state that can credibly argue that we’re not in a better fiscal position today than we were in 2017.”

And while Scanlon is correct when he noted that the full legislature voted unanimously last February to extend those fiscal guardrails at least for another five years — and possibly through 2033 — he also acknowledged there are bugs in the system.

“Is it perfect? No,” Scanlon said. Many progressive Democrats argue that state is saving too aggressively, trying to wipe out decades of fiscal irresponsibility in a few years while ignoring growing needs in social services, health care, education and other core programs. 

In recent years, majority Democrats in the House and Senate have insisted on carrying forward a portion of the annual surplus into the next fiscal year’s budget.

For example, last fiscal year’s $1.9 billion surplus would have been $340 million larger had lawmakers not carried that smaller amount into the new budget cycle to bolster funding for public colleges and universities, the nonprofit agencies that deliver the bulk of state-sponsored social services to people with disabilities, and to federally qualified health clinics.

And because those surplus dollars technically were appropriated this fiscal year, they won’t count against the spending cap in the coming biennium.

“There are pressures on those leaders to meet more needs that are happening right now,” Scanlon said, adding he understands top lawmakers have had to find political compromises to get budgets adopted in recent years. 

Conservatives say this amounts to little more than an end-run around the spending cap. Lamont, a Greenwich businessman and fiscal moderate, has cautioned his fellow Democrats about using these “carry forwards” to cover recurring expenses in core programs.

What happens to these programs, for example, if the state doesn’t have a large surplus in the coming years? Do these programs face big cuts?

Early projections in the current two-year budget cycle include nearly $1 billion cushions in each year, healthy margins that each represent more than 4% of the General Fund.

But they are well below last year’s $1.9 billion surplus and a far cry from the record-setting $4.3 billion surplus Connecticut achieved in 2021-22.

And with the global economic picture uncertain heading into 2024, Scanlon urged legislators not to stray too far from the existing guardrail rules.

“These reforms have borne a lot of fruit, and as a result of that, Connecticut is healthier for it, and I think we have to adhere as close as we possibly can,” Scanlon said, adding that “the budget will not always remain as it is today.”

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.